CREDIBILITY AND POLITICAL BUSINESS CYCLES

This paper develops a political business cycle model based on partisanship and credibility arguments that explains the pre-election behavior of inflation, output, and money growth. The approach taken is to introduce elections and a Mundell-Tobin effect into a structure similar to the Barro-Gordon (1983) model of governmental reputation. The model's predictions are similar to those of the simple manipulative models of Nordhaus (1975) and Frey and Schneider (1978), but the predictions do not rely on economic irrationality, myopia, or memory loss.